Who: The Office of Fair Trading (OFT)
Where: United Kingdom
When: 16 October – 10 December 2013
Law stated as at: 8 January 2014
At the end of last year, the OFT issued a consultation on proposed draft guidance intended to assist lettings professionals to comply with consumer law where the private residential lettings market is concerned.
The consultation follows the OFT’s report on the residential lettings market published in 2013. That report was instigated due to the high levels of consumer complaints regarding the practices of lettings professionals, particularly where issues such as fees and charges, poor professional service, security deposits and delayed or sub-standard repairs were concerned.
Findings of the 2013 OFT report on the residential lettings market
The findings of the OFT’s report included confirmation that, for purposes of consumer protection legislation, the OFT views tenants as ‘consumers’ in relation to their interactions with landlords and letting agents (as will be a significant proportion of landlords in relation to interactions with their letting agents). However, the OFT recognised that there may often be uncertainly as to those landlords who are consumers and those who are traders and this has resulted in uncertainty as to the legal rights and obligations of tenants, landlords and letting agents in the residential lettings market in England and Wales.
The OFT’s recommendations to the Government arising from the 2013 report included that consideration should be given as to whether lettings agents should sign up to a code of practice or join a redress scheme and whether any elements of other regulatory regimes should be introduced into the lettings framework.
The OFT also indicated that it intended to produce and consult on a document which would provide guidance for letting agents on the Unfair Terms in Commercial Contracts Regulations 1999 (UTCCR), the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) and the Business Protection from Misleading Marketing Regulations 2008 (BPRs). It is the draft of this guidance that the OFT released it for the purposes of consideration at the end of 2013.
Contents of the draft OFT guidance
The draft guidance focuses mainly on the application of the UTCCRs, CPRs and BPRs as well as the application of the Supply of Goods and Services Act 1982 to the activities of lettings professionals. A “lettings professional” is considered to be anyone who, as part of its business, supplies services related to the letting of privately owned residential property. The draft guidance is therefore relevant to letting agents and landlords (whether or not they use the services of a lettings agent).
The draft guidance identifies examples of trading practices that could breach legislation and sets out the OFT’s views on how applicable legislation might apply at each step of the lettings process. The guidance of most interest to www.marketinglaw.co.uk is that which relates to how letting professionals advertise their services. Advertising points to note include the following:
1. When letting professionals are advertising their services, “material information” that needs to be provided to consumers within such an advertisement from the perspective of the CPRs is likely to include a description of the professional services provided, the fees and charges applicable to those services (and how they are calculated and payable), and the length of any applicable contract and how it can be terminated.
2. If a letting professional does not know a piece of “material information” when creating advertising materials, it could still be a misleading omission if they do not disclose it. So where an agent is marketing a property to let, the onus is on the agent to obtain sufficient information from the property owner in order to avoid misleading potential tenants (such as any restrictions on the use of the property).
3. The OFT points out that the requirement not to mislead consumers by omission under the CPRs applies throughout the advertising and management of a property. This means that if a letting professional becomes aware of material information later on in the management process, they must still disclose it to consumers. Therefore if an agent learns that a previously promoted property will not be ready on the advertised date (such as if building works overrun), all interested parties should be notified of this fact and so any existing ads should be updated as soon as the lettings professional becomes aware that the ad is no longer accurate.
4. The OFT has confirmed that it considers an advertisement depicting a property to let and the rental to be paid as an “invitation to purchase” in the lettings context. This means letting professionals are likely to need to include other information in any such advertisements too, such as the fees payable in addition to rent.
5. The OFT has confirmed the BPRs will apply to an agent in their dealings with a landlord who is not a consumer and has provided the following illustrative examples of misleading business to business advertising in the guidance notes:
- misleading a university accommodation service about the quality of properties an agent has available for students to rent; and
- providing misleading information about the level of rent that an agent will be able to obtain for a property, or the number of tenants it has waiting for properties, in order to obtain business from a professional landlord.
This is not intended to represent an exhaustive list and in each case the OFT has confirmed that the test is whether the trader (to whom the advertising is addressed or reaches) is misled or likely to be misled and, as a result, alters their economic behaviour or a competitor is harmed or likely to be harmed.
6. Letting professionals are reminded that it will constitute a breach of the BPRs to make comparisons with competitors in their advertising unless they meet the conditions that permit such comparative advertising to ensure that it is not misleading, whether under regulation 3 of the BPRs or under regulations 5 (misleading actions) or 6 (misleading omissions) of the CPRs. The OFT has provided the following as illustrative examples of breaches of the rules on comparative advertising by letting professionals:
- making comparisons with other property lettings businesses that are not true, for example regarding numbers of properties for rental, levels of fees and charges, opening hours, numbers of offices or number of staff;
- advertising that they are the leading property lettings business in a particular area or field when they are not (or cannot evidence this), and/or
- advertising that they have a particular market share in an area when they do not.
The OFT’s tips for compliant advertising to landlords
The OFT also provides letting professionals with tips for compliant advertising for new business from landlords including that they should:
- ensure any information they provide when marketing their services, in whatever form (for example flyers, websites, newspaper advertisements, verbal discussion), is true and accurate and is not liable to mislead potential new clients (for example that details about properties that it has ‘Let’ or is in the process of ‘Letting’ or statements about professional qualifications or membership of a professional body or redress scheme, are accurate and not out-of-date);
- ensure any comparisons with competitors are fair, objective and can be substantiated;
- ensure that when advising on a rental figure they have a sound basis for the figure recommended, drawing upon professional knowledge of the current local market and market conditions – they should not deliberately provide a rental figure that has been inflated in order to gain instructions from a landlord;
- when offering services to clients, ensure they provide full information on fees and charges, such as how they are calculated and when they will be payable, before the client becomes contractually bound to pay. The OFT has indicated agents are more likely to comply with the law if they provide a summary of fees and charges in a single tariff; and
- advertise charges as inclusive of VAT (including charges that are expressed as a percentage of rent for example) as their clients are likely to be both consumers and businesses.
The OFT has also provided the following list of practices it considers are likely to involve either misleading actions, misleading omissions, aggressive or banned practices or a breach of professional diligence under the CPRs, misleading advertising under the BPRs, breaches of the UTCCRs, or breaches of the SGSA (or common law in Scotland):
- an agent advertising that it is a member of a code of conduct or redress scheme, when it is not;
- an agent advertising it is bound by a code of conduct, but failing to comply with it;
- failing to provide enough clear information about the range of relevant services that are actually included in the regular fee charged to landlords (which may lead landlords to think an agent’s service is more comprehensive than it actually is);
- describing services as a ‘full management service’ or similar, or emphasising the benefits of the comprehensive nature of services, when in fact the agent makes additional charges for certain management activities (such as answering call outs or organising maintenance work);
- not setting out clearly and up front what applicable charges will be;
- making misleading statements about the availability of tenants;
- making misleading statements about the level of rent that a property could potentially achieve; and
- failing to highlight onerous or surprising charges, such as renewal commission, or describing a service as a ‘tenant finder service’ or similar, when in fact the contract includes an obligation to pay renewal commission.
The OFT’s tips for compliant advertising to tenants
The guidance also contains a section on marketing communications aimed at potential tenants and the provision of information to tenants. When gathering information for the creation of marketing materials relating to a property, the OFT recommends that agents and landlords have appropriate processes in place to collate and verify all the information that potential tenants will need in order to decide whether a property being marketed is suitable for them.
Before marketing a property, the guidance recommends they should gather sufficient information about the property in order to market it professionally and appropriately with such information being collected in good faith. Agents and landlords are told they should not simply rely on information provided by others if it is incomplete or the agent/landlord suspects it may be wrong, particularly where a prospective tenant does not inspect the property themselves prior to signing a tenancy agreement.
Where an agent provides a form of hosting service or platform through which prospective landlords and tenants can contact each other, the OFT suggests the agent should make sure that the information templates provided to landlords are comprehensive, so all information reasonably likely to be relevant to meet the expectations of potential tenants is captured (e.g. all fees that prospective tenants may be charged in addition to rent and deposits).
Advertising materials promoting a property should also present all relevant information fairly and fully, and include any material information that any potential tenant would need to know, including any information an agent or landlord know might put consumers off renting that property. It is also recommended that commonly used phrases such as ‘fully furnished’, ‘unfurnished’ or ‘partly furnished’ also be clearly defined with more detailed information as to what fixtures and/or fittings may be provided.
Where a landlord or agent advertises online, either on their own website or on social media sites, the OFT recommends they should make sure their fees are presented clearly and up front, and that users can download property information and applicable terms and conditions for future reference. The OFT is of the view that it may not be sufficient to provide important information by way of pop ups or hyperlinks in this context, and lettings professionals should make the most of available space online to present their fees in a comprehensive and easy to understand way. The OFT would not expect important information to be provided by means of a link if it is possible to provide it up front on the webpage in question.
Finally, the OFT has provided useful indications of what it would consider to constitute a breach of applicable legislation where advertising to tenants is concerned which includes:
- mis-describing or failing to disclose the main characteristics of the property (such as its location, number and size of rooms, whether or not it is furnished or unfurnished and any restrictions in the tenancy agreement);
- advertising the rent at a lower rate than that actually being charged;
- advertising a desirable property as available to rent, when in fact it is not, in order to attract interest in the agent’s business;
- advertising to tenants that properties are available to rent at a stated rental, when in fact the agent doesn’t have sufficient properties at that rental on its books to satisfy likely demand (taking into account the scale of the advertising);
- providing information that is presented in a deceptive way even if literally true, for example describing a property as being in a ‘quiet area’ whilst failing to mention that it is above a late night bar;
- using photographs that do not depict the property accurately, or altering images to leave out problematic features; and
- failing to make clear that something appearing in a photograph, which a potential tenant would reasonably assume was included as part of the property, for example, use of a garden, is not actually included as part of the letting.
Why this matters:
The OFT’s consultation on this guidance came to a close on 10th December 2013 so we are waiting to see what kind of responses the OFT received from interested parties and therefore how, if at all, this guidance may change before it is finalised. When completed, this guidance will be a useful tool for lettings professionals and can be used as a good basis for the creation of their marketing materials to ensure legal compliance.
The OFT is hoping to reduce the number of complaints it receives in respect of this market sector which can also only be a good thing for lettings professionals themselves. It remains to be seen whether any such guidance will mean there is greater disclosure within the lettings market about applicable fees and charges levied by agents and a reduction in complaints to the OFT regarding poor service. From April 2014, it will be the newly formed Competition and Markets Authority (the CMA) taking the helm on this issue once it becomes the UK’s lead competition and consumer body taking over the existing competition and consumer protection functions of the Office of Fair Trading and the responsibilities of the Competition Commission.